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FINANCIAL ECONOMETRICS 1
Thierry Post, Professor of Finance, EUR/ FEW gtpost@few.eur.nl
Philippe Versijp, Ass.Professor, EUR/FEW/Tinbergen Institute versijp@few.eur.nl
Introduction
The course presents an introduction to basic econometrics with applications to finance. The objective is to provide theoretical and empirical insights in the standard linear regression model and its underlying assumptions. Special attention is given to diagnostic tests to detect violations of these assumptions, as well as procedures to correct for them. After this course students will have an understanding of frequently occuring problems in empirical regression analysis as well as the tools to adress these problems when analyzing actual data.
Course details
The first part of the course (lectures 1 and 2) presents an introduction to econometrics, with particular emphasis on hypothesis testing and the standard linear regression model. In particular, the ordinary least squares (OLS) estimation will be discussed, in particular its assumptions and its properties. In following lectures the focus will shift to situations where the OLS method is not optimal or appropriate. The emphasis will be on violations of the assumptions underlying the Gauss-Markov theorema. For each assumption the implications of violations will be discussed, followed by diagnostic tests to detect them as well as techniques to correct the problem. All tests will be illustrated with empirical examples using Eviews.
Course activities
Beside classes, students are expected to do some empirical work using Eviews (available on CD-ROM for students). An introduction to Eviews will be provided, and several lectures will contain demonstartions of, and/or exercises with the Eviews software. The penultimate lecture will contain a graded Eviews assignment. The exam is written with mostly open questions.
Grading Criteria
80 % - Exam
20% - Empirical Case
Overview Outline
Course overview Financial Econometrics I
Note: chapters and session numbers refer to: Kennedy (2003), A Guide to Econometrics, Blackwell Publishing, and Levy & Post (2004), Investments, Pearson.
Note: schedule subject to change, if necessary.
1. (Post)
Literature: Appendix A Levy-Post; Ch.1-4 Kennedy.
Refresher statistics, hypothesis testing, criteria for estimators, introduction OLS. (focus on appendix A Levy-Post, Ch2 and Ch4 Kennedy)
2 (Post)
Literature: Ch.1-5 Kennedy.
Introduction OLS (cont.), univariate and multivariate regression (focus on Ch.3,5 Kennedy)
3 (Versijp)
Literature: Ch. 11, 5 and 6 Kennedy.
Specification and introduction to the Eviews software.
4 (Versijp)
Literature: Ch. 14, 6 and 7 Kennedy.
Dummy variables, expectation of disturbances, and multicollinarity
5 (Versijp)
Computer exercise with Eviews & discussion (BRING LAPTOP WITH EVIEWS)
6 (Versijp)
Literature: Ch. 8 Kennedy.
Autocorrelation and heteroskedasticity
7 (Versijp)
Literature: Ch. 9,10 Kennedy.
Endogenity, errors-in-variables
8 (Versijp)
Computer exercise with EVIEWS & discussion (BRING LAPTOP WITH EVIEWS)
9 (Versijp)
Literature: Ch. 10 Kennedy.
Cont. discussion of the eviews exercises; SUR, 2SLS
10 (Versijp)
Graded Eviews exercise (BRING LAPTOP WITH EVIEWS)
11
Guest lecture, subject/lecturer TBA.
Exam: tba
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